The U.S. equity markets have continued to rebound from the lows seen during the early months of COVID-19, with the S&P 500 increasing 9% and the Dow Jones increasing 8% during the third quarter of 2020. The rebound has been supported by better-than-expected jobs data, discussions around additional economic stimulus, and hopes of a near-term COVID-19 vaccine. Despite the potential for a resurgence of COVID-19 cases during the flu season, and concerns over the results of the impending presidential election, investor sentiment continues to appear optimistic.
The Business Services sector has shown remarkable resilience throughout the COVID-19 pandemic, bolstered by the essential services nature of the sector and the relatively low direct impact of COVID-19 compared to more consumer-driven sectors. Other than the Human Resources Outsourcing subsector, public valuation multiples in the Business Services sector exhibited further expansion in Q3 2020:
- The Human Resources Outsourcing subsector saw a 12% decrease in the median EBITDA multiple, as investors closely tracked widespread job losses. The uncertainty of when these jobs will return puts additional pressure on the subsector. While the overall subsector saw a 12% decrease in value, the healthcare staffing subsector median EBITDA multiple decreased by only 2% in Q3 2020.
- The Contact Center Services subsector median EBITDA multiple increased by 1% due to the limited impact of the pandemic on contact center companies. Contact center businesses that have been able to leverage technology and rapidly mobilize their agents to a work-at-home-environment in the midst of the pandemic have been able to not only continue serving their existing clients, but in some cases gain market share from those who have not been so adept. The subsector has also benefited from certain programs coming back on-shore as a result of the pandemic’s devastating impact on certain offshore geographies.
- The Fixed Asset Management subsector has continued to display resilience throughout the pandemic and, in Q3 2020, the subsector experienced a median EBITDA multiple expansion of 5%. The essential services nature of the service offerings by companies in this subsector has enabled it to continue to weather the storm.
Moving into Q4, the spotlight will be on the presidential election and the potential for a near-term COVID-19 vaccine. Business owners will be paying close attention to the election results and what those results may mean in terms of the overall direction of the economy, as well as specific changes to corporate taxes, capital gains taxes, and estate taxes.
BGL’s quarterly publication covers public company operating metrics and M&A activity across a variety of Business Services subsectors, including human resources outsourcing, contact center services, and facility maintenance. BGL remains committed to informing clients on the current state of the Business Services market and discussing M&A strategies and financing alternatives.